APM Terminals sale of Portsmouth facility could allow state to renegotiate lease

The state's $1.16 billion deal with a private firm that officials blame for driving the Virginia Port Authority deeply into the red could be restructured now that the company has agreed to sell its cargo terminal, Secretary of Transportation Aubrey Layne said Tuesday.

APM Terminals is selling its Portsmouth facility to a group of investment funds managed by Alinda Capital Partners and Universities Superannuation Scheme Ltd., the biggest private sector pension fund in Britain.

"This is really a chance for a reset," Layne said, speaking during a break in the port authority board's regular meeting. "It could be a win-win."

Layne has said the authority's 2010 agreement to lease the terminal from APM is such a bad deal for state taxpayers that it might make sense to cancel it.

The port is on the hook to pay $50 million a year to lease the facility through 2030. At the same time the port authority, which is supposed to pay its own way, relies on $40 million a year of taxpayer support.

APM spent $500 million to build the terminal in 2007 and operated it briefly before arranging the lease. It would not disclose the sale price, but the London maritime newspaper Lloyds List reports that the two will borrow $450 million to fund the purchase.

APM and its parent have given more than $136,000 to Virginia politicians and political action committees since 2001, including $5,500 to Gov. Bob McDonnell, whose administration arranged the lease and who pushed unsuccessfully for a proposal to sell the entire port authority to a partnership of APM and a Wall Street investment firm.

APM said the sale would not affect shipping companies using the terminal or the people working there.

Layne said that if anything, the sale might make it easier to negotiate a new arrangement less damaging to the state's interests.

State officials have already discussed Virginia's concerns about the lease with the new buyers, he said, though no new agreement on its terms has been reached.

Layne said the new buyers' financial goals aren't the same as APM Terminals, because it is not a terminal operating company. In addition, the need for improvements over the next 16 years could be a talking point that opens the possibility of renegotiating terms of the port authority lease for the terminal.

One key issue for Layne and Gov. Terry McAuliffe is that the current lease does not allow for the state to take over the terminal in 2030 – something that makes for a particularly good deal for terminal operating company but that an investor only interested in lease payments would not necessarily care about.

Now, though, "ownership of this terminal does not fit with our global strategy and ambition to operate and develop ports," said APM Terminals chief financial officer Christian Moller Laursen.

The buyers meanwhile said they "are attracted to the terminal's modern design and high levels of automation, which ensure that the facility will be a key component of the port's infrastructure now and in the future."

The buyers expect to complete the purchase by the end of September.

Earlier, the port authority board voted to ask the state to make a $10 million line of credit available, as a kind of rainy day fund.

Layne said he had been discussing the idea for some time, and that he supported the idea. He said improvements continue in the authority's finances and that the request for the credit line did not mean the agency was running into money difficulties.

The board also approved a $7 million project to resume container shipping operations at Portsmouth Marine Terminal.

The idea is to reopen one berth at the under-used facility to container ships, said Port Authority CEO John Reinhart. The aim is to ease congestion at the port's other container terminals, which are operating just about all out.

The terminal will be renamed "Virginia International Gateway," according to a news release. The investment partnership plans to purchase all of the issued and outstanding capital stock of APM Terminals Virginia Inc.

The deal is expected to close in the third quarter pending regulatory approvals. While the sales price was not disclosed, Lloyd's List reports here that the investment partnership plans to raise $450 million through a private placement bond to fund the purchase.

Neither shipping line customers nor staff will be affected by the sale, according to a news release.

APM built the deep-water marine container terminal in 2007 and began leasing the facility to the Virginia Port Authority in 2010. Virginia International Terminals, the nonprofit operating arm of Virginia Port Authority, manages the facility. The buyers would become the new landlord.

Alinda and USS leaders say they intend to collaborate with Virginia and the Port Authority to see how the facility can support the port's growth.

“We are proud of the facility we built and the relationship we established with the Commonwealth of Virginia and the Virginia Port Authority," APM Terminals Chief Financial Officer Christian Moller Laursen said in a prepared statement. "However, ownership of this terminal does not fit with our global strategy and ambition to operate and develop ports."

Gov. Terry McAuliffe had been critical of the port's $1.16 billion, 20-year lease agreement with APM Terminals. The expensive rent payments haven't helped with VPA's financial operating losses. The VIT-APM lease is set to expire in 2030.

Last year, APM submitted an unsolicited bid to the state to operate the state's marine terminals. The Gov. Bob McDonnell supported privatizing the port's operations. The company estimated the value of the offer as high as $3.9 billion over a 48-year term.

Alinda is a U.S.-based firm specializing in infrastructure investments both domestically and abroad. USS is a private sector pension fund in the United Kingdom that maintains a global infrastructure portfolio. Netherlands-based APM Terminals is an independent business of the Danish shipping conglomerate A. P. Moller-Maersk.